Lender fee funds financial literacy program
The News Journal
By Esteban Parra
Robert Saunders needed cash in May to pay his mounting bills.
Unable to get a bank loan, the 36-year-old Wilmington resident turned to a title loan lender for the $500, putting his 1992 Toyota Camry up as collateral. But when the loan came due in 30 days, Saunders said he didn’t have money to pay the full loan and had to pay installments.
Saunders made his first installment last month, but said he wasn’t sure he would have the $152 due today. Now he faces losing his Camry, which is his and his family’s only transportation.
“They get the car for $500, then they can go and sell it or hold it,” Saunders said. “They can do whatever they want to with it and you would still have to end up paying back that money to them.”
Prior to Thursday, if a borrower defaulted on a title loan, the person risked losing the vehicle and was still responsible for paying what was due. The practice came to an end Thursday, when Gov. Jack Markell signed a new law that provides protection for consumers of title loans — short-term loans in which a borrower provides a motor vehicle as collateral.
While the person in default can still lose the vehicle, the borrower will not owe more.
Additionally, lenders licensed by the state bank commissioner will pay an annual fee of $1,500 for each licensed office. That money will be used to fund the creation of the Financial Literacy Education Fund — a financial education program for consumers and schools.
“The goal is to protect them from the catastrophe that you could wind up in when you can not pay off these loans,” state Banking Commissioner Robert A. Glen said.
Restricting lenders from taking more than the vehicles is a step in the right direction, according to fair-lending advocates.
“At least limiting the liability to taking the collateral only is a good starting point,” said Rashmi Rangan, executive director of the Delaware Community Reinvestment Action Council, a fair-lending advocate. “This was a good start, but we certainly, definitely have a long way to go.”
Rangan said the state needs usury laws, which would cap unreasonable or relatively high rates of interest. Delaware hasn’t had usury laws on the books since they were abolished in 1981.
“I hope I will see it in my lifetime,” she said.
While she’s not in favor of abolishing title loan businesses, Rangan said these places need to be looked at closely so they don’t take advantage of people who have few alternatives.
“If you had a choice, why in the world would you go to a lender, give title to your vehicle and borrow $200, sign papers that say ‘within 30 days I will come back with $800 to get my car released,’ ” she said. “There are no choices.”
Markell signed the law following a press conference Thursday at Wilmington’s West End Neighborhood House, which announced it was expanding its low-interest loan program statewide. The program, called Loans Plus, was touted as an alternative to predatory lenders.
“West End has helped hundreds of people achieve financial stability and end payday lending debt,” said Barbara Reed, director of the Housing and Financial Management Program at West End. “With the help of our dedicated partners, I am thrilled that our program has increased its capacity to serve Delawareans by 200 to 300 percent annually.”
In addition to West End, Loans Plus will be available at three Catholic Charities locations and two YWCA locations in the state.